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Is Germany’s New Industrial Strategy Good For Its Economy?

Industrial Strategy

Chinese President Xi Jinping hatched "Made in China 2025”,  it didn’t go down well with many world leader, especially in Western economies. And now Germany has proposed an equally abrasive push.

Germany’s economic affairs minister, Peter Altmaier, has launched an ambitious and somewhat controversial industrial strategy that seeks to cement the country’s technological leadership while protecting sensitive companies and industries in what has been seen in some quarters as reeking of protectionism.

Dubbed ‘National Industrial Strategy 2030’, the plan will act as the country’s roadmap to securing or regaining economic industrial leadership, technological competence and overall competitiveness at the national, European and global level. The initiative calls for boosting industrial output to 25 percent of overall economy from 23.2 percent currently and emphasizes the need to shore up ‘national champions’ and strengthen key technological sectors including automotive, space, aerospace, raw materials, medical equipment and weapons.

Altmaier has noted that the country trails the U.S., China and Asia in key technological sectors. His rallying call to create ‘European Champions’ through mega-mergers came just a day after European regulators blocked a proposed merger by Germany's Siemens and France's Alstom to fend off the threat by China's state-owned rail giant, CRCC. Related: Greed Is Ruling The Markets Once Again

But it’s his proposed style of regaining technological leadership that has some observers worried.

Economic politburo

According to Altmaier, the success of specific firms such as BMW, Daimler, Volkswagen, BASF, Siemens, Deutsche Bank and Thyssenkrupp is in the nation’s interest--and he wants to protect them from hostile takeovers.

He has proposed setting up a major battery cell factory in Europe to counter the threat by EVs. His concerns are understandable. The country’s business and political leadership were stunned by the 2016 purchase of leading German robotics firm Kuka by a Chinese company and are absolutely paranoid about losing their global leadership in cars.

But it’s his proposal to create a state investment fund to block takeovers of critical tech companies that has observers worried that the country is taking a step in the wrong direction.

As Financial Time’s Guy Chazan has noted, the formation of such a body would essentially go against the principles of a free-market economy that Germany has espoused until now.

Altmaier’s bold strategy has come under fire from his own countrymen, too. Lars Feld, a leading German economist, has said that it would be wrong to give some companies virtual guarantees of existence while Wolfgang Steiger, head of the business wing of Altmaier’s conservatives has said that going ahead with the plan would mean that Altmaier is essentially setting himself up as the country’s economic politburo.

Related: Return Of The Government Shutdown May Be Inevitable

Meanwhile, competition expert Justus Haucap has warned that efforts to facilitate mega-mergers is completely wrong, defies economic evidence and would ultimately prove very damaging to the economy. He has duly noted that history had clearly shown that mega-mergers are bad for a free-market economy because they tend to stifle innovation and drive prices up. It’s worth noting that regulators cited the risk of creating a near-monopoly as the key reason for scuttling the Siemens-Alstom deal.

Head of German Chambers of Commerce Erc Schweitzer has welcomed efforts to strengthen German industries but remains skeptical of any moves by the government to shape companies’ investments.

Industrial policy

The strategy, though, features some sound action points.

For instance, the government is looking to quickly implement long overdue economic and industrial policies including new tax incentives for research and nationwide development of 5th generation cellular networks. The plan also seeks to explore ways to lower the country’s high energy costs to make its chemical plants more competitive and also carry out a review of climate and environmental protection plans to harmonize them and make them more efficient.

Germany is facing tough times with the European Commission recently issuing a dim outlook for the country’s growth prospects. The country’s iconic automobile industry has come under pressure due to stricter emission standards and it’s feared it might take several years to fully recover.

By Alex Kimani for Safehaven.com

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